Roadrunner Transportation Systems, Inc.’s (NYSE: RRTS) third quarter earnings report resembled a triage list citing everything from goodwill and asset impairments to a labor strike to a malware attack.
On November 6, The company reported a $97.8 million net loss, or $2.60 per share, in the third quarter of 2019. The loss included $40 million of impairment charges and $13 million in charges related to the downsizing of its dry van operations. The period also included a $30 million reduction in interest expense from the redemption of its preferred stock earlier in the year and a lower tax benefit.
Roadrunner reported a 14% decline in total revenue to $459 million. The company’s press release cited weaker market demand and rates as well a labor strike at General Motors (NYSE: GM), its largest customer. The strike negatively impacted revenue at Roadrunner by $17 million in the third quarter and is estimated to have been a $31 million drag on revenue in October. The strike ended on October 25.
Roadrunner continues to restructure in 2019. The company completed a re-capitalization significantly lowering its debt load in February and completed a 1-for-25 reverse stock split in order to comply with New York Stock Exchange listing requirements in April. The company announced that it would cut its unprofitable dry van operations (Rich Logistics, headquartered in Little Rock, Arkansas) by more than half, closing five terminals and terminating approximately 450 positions, at the end of September.
Yesterday, the company announced that it sold its intermodal business to Universal Logistics Holdings, Inc. (NASDAQ: ULH) for $51.25 million in cash. Revenue from its intermodal division was 22% lower in the third quarter due to lower load counts and negative impacts from Hurricane Dorian and the malware attack. The divestiture of the intermodal division included more than 700 power units and 23 terminal locations. The downsizing of dry van operations and the sale of the intermodal unit were done in efforts to reduce lease obligations and debt.
“In the third quarter, we experienced a number of challenges that impacted our operating performance. At the end of the third quarter, we announced the downsizing of our dry van business, which is proceeding as planned. The General Motors strike has now ended, and we are fully recovered from the server and applications quarantine caused by the malware attack. After quarter end, we successfully completed the divestiture of our intermodal services business,” said Roadrunner’s CEO Curt Stoelting.
Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) was negative by almost $17 million, compared to positive EBITDA of almost $5 million in the same period the year prior. In addition, to the items called out as financial headwinds in the quarter, lower revenue throughout all of Roadrunner’s segments and increased insurance and claims, mostly in the truckload (TL) division, drove results lower.
The companies Ascent (global logistics) and Active On-Demand (premium mission-critical air and ground transportation solutions) posted EBITDA positive results in the period. Ascent saw a 14% year-over-year decline in revenue due to lower load counts and revenue per load with revenue declining 26% at Active On-Demand. EBITDA remained positive in both segments.
The company’s less-than-truckload (LTL) and TL divisions saw more pronounced declines in EBITDA even though the revenue declines were more modest. The release stated that the LTL segment would have seen a revenue increase without the malware attack. The company plans to file an insurance claim in the fourth quarter to recapture lost revenue from the attack.
“Despite a very challenging third quarter, we are making progress on executing our longer-term strategic and business improvement plans and technology investments. External events and soft market conditions can delay realizing the benefits from these improvements and investments,” said Stoelting.
The company will continue to narrow its focus to less capital-intensive offerings like logistics and asset-light LTL as previously announced in its second quarter earnings release.
“With the recent divestiture of the intermodal services business and the downsizing of the dry van business, we are simplifying our portfolio by narrowing our strategic focus to the value-added logistics and asset-light LTL businesses. The goal of this strategy is to improve our operating performance, increase our returns on invested capital, and add significant value-creation opportunities. We continue to evaluate additional divestitures that will enable this strategy,” concluded Stoelting.